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Malaysia is a middle-income country in South East Asia with a population of 23 million people.

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Introduction

Malaysia is a middle-income country in South East Asia with a population of 23 million people. Malaysia was formed in 1963 through a merging of the former British colonies of Malaya and Singapore, including the east Malaysian states on the northern coast of Borneo. However Singapore seceded from Malaysia in 1965. Below: A Map showing the country of Malaysia, Situated in South East Asia. Malaysia is currently an export-oriented manufacturing economy and has developed rapidly from being an agriculture-based economy only 25 years ago, to one now dominated by manufacturing. This is shown by manufacturing growing from 13.9% of GDP in 1970 to 46% in 2002, while agriculture and mining, which together had accounted for 42.7% of GDP in 1970, dropped to 12% in 2002. Manufactures now account for about 82 per cent of Malaysian exports, of which most are Electronic goods. The composition of the Malaysian economy is: Agriculture and Mining: 12% Manufacturing: 46% Services: 42% Below: A Table showing key Economic Indicators for Malaysia from 1998 - 2003 1998 1999 2000 2001 2002 2003 GDP (US$bn) 72.2 79.1 90.2 88 94.9 101 GDP (per capita US$) 3254 3485 3837 3664 3868 4042 Unemployment % 3.9 3.4 3.1 3.7 3.5 4.0 Inflation (% Change) 5.3 4 1.6 1.4 1.8 1.7 Globalisation refers to the increasing integration of economies and markets leading to the emergence of a global market place. The process of globalisation has had a big impact on the Malaysian economy and culture. Malaysia is a country embracing globalisation and adopting strategies to further enhance the positive effects of globalisation upon their economy. ...read more.

Middle

However even in times of need like during the 1997 Asian recession, Malaysia refused to accept IMF loans, instead Malaysia implemented its own strategic changes to cope with the hardships. Even though there was international criticism of Malaysia not accepting loans its has proven in Malaysia's favour as Malaysia has since had high levels of growth and developed infrastructure in the financial sector to minimize or prevent any future recessions of the same magnitude as in 1997, without the need to repay World Bank loans and conform to their strict restructuring criteria. Malaysia has also been adversely affected by globalisation in the past. As part of Malaysian reforms aiming to implement the National Development Policy, deregulation of the financial sector, privatisation of state-owned enterprises and lowering of tariff and protection barriers occurred. However, once markets were opened up, Malaysia soon found that along with the rewards of trade liberalisation, such as access to more markets, came with it the volatility of the financial world. In 1997 Malaysia was hard hit by a contagion in local markets. The crisis of 1997 escalated when the Thai government devalued its currency. Thailand was in a bad economic state with an unsustainable current account deficit, rising foreign debts (particularly short term) and increasing difficulties in the financial sector. The foreign and local investors withdrew their money not only from the Thai economy but also from Malaysia and Indonesia in massive amounts. The contagion spread to Korea, Hong Kong and China by October that year. In the first two quarters of 1998, Malaysia, Hong Kong and China slid into recession. ...read more.

Conclusion

This makes the future for Malaysia look bright. The 2020 policy in which Malaysia want to be classified as an AIE is likely to happen although unforseen circumstance may slow down this aim. A weakness in current policy in Malaysia that could slow development is the pegging of the Malaysian currency the Ringgit to 3.80/US$ this allows the Malaysian market to be undercut by other economies that have lower exchange rates. The Yuan has been also pegged to the US$ at a seemingly lower rate then the Ringgit, this allows Chinese exports to have a comparative advantage in export markets. The refloating or devaluing of the Ringgit could be beneficial to Malaysia in the future. Also the strategies adopted by the Malaysian government have been largely beneficial to the manufacturing sector. This however has left the agriculture sector of the Malaysian economy to suffer from increased competitiveness, Rice farmers in particular are now struggling to sell all of their crops and are creating surpluses which are unable to be sold. Malaysia has maintained healthy foreign exchange reserves and a relatively small external debt, which make it unlikely that Malaysia will experience a crisis similar to the one in 1997. However with Malaysia being highly dependent upon exports to Japan and the USA the current economic slowdown hurts Malaysian growth as export rates are lowered, as is FDI in Malaysia from those countries. If this slowdown is prolonged the 2020 vision may have to be postponed. However while still not classified as an AIE Malaysia is sure to become one in the future, before or after 2020, it is not certain, but rising GDP and Income Per Capita has lead to an increase in Malaysian standard of living, which is likely to continue. ...read more.

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